Assume the debt principle repayment for this year is $55 million and there is no change in working capital. Revenue 405,000.00 Operating expenses 250,000.00 Operating Profit 155,000.00 Interest expense 14,000.00 Profit before tax 141,000.00 Tax Expense 42,300.00 Net Profit 98,700.00 It has been argued time and again that the DSCR and ICR for projects such as power plants can be below the rule of thumb which is below 1.6 and 1.5 respectively. The extract of the income statement above is for a power plant project which is seeking financing from your Development Bank. As a new Head of Finance at the African Development Bank you have been presented with the above statement (information) for your decision making.

Required

a) Calculate the Debt Service Coverage ratio (DSCR) and Interest Coverage ratio (ICR)

b)With your rations in (a) and the rule of thumb principle do you approve the loan

c) Write a report to the board of directors citing circumstances under which a project that does not meet the rule of thumb criterion can be financed.